Yellen Takes the Stand

With Ben Bernanke termed out on January 31, 2014, nothing much is expected to change with accommodative Federal Reserve monetary policy. Yesterday, Federal Reserve Vice Chairman Janet Yellen came forward before the U.S. Senate Banking Committee for her confirmation hearing. Political theater played in the background as some policymakers tried to act tough with the Fed Chairman nominee. Already holding the #2 slot at the Federal Reserve, Yellen’s confirmation is all but a shoe-in. However a Republican senator on the committee, David Vitter of the state of Louisiana, plans to oppose her. Earlier in November, Senator Vitter took a stand speaking out against the Federal Reserve’s bond buying program.

Magic bullet measures such as bond buying and asset purchases by the central bank will likely continue.

In 2008, the Federal Reserve played their QE card and moved to bring interest rates to zero. Yellen reiterated the only thing to do is to “to do everything possible to promote a very strong recovery.” With ease, Yellen demonstrated that the overall risk is worth the unintended consequences of quantitative easing, playing down the notion of asset bubbles forming in various markets. With boldness, she indicated a continuation of the Federal Reserve’s extraordinary monetary stimulus under her watch. Magic bullet measures such as bond buying and asset purchases by the central bank will likely continue. Money managers are happy Yellen is in the chair, as equity markets would tank with a less dovish central bank head.

Asset owners such as U.S. pensions face dire consequences due to the Fed’s accommodative policies. Encouraged risk-taking and speculation into asset classes such as life settlements, re-entering the CMBS market and illiquid assets proliferated in Pensionland.

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